2022 (1) TMI 1460 - HC - Indian Laws

Issuance of summons in the suit - fraud and collusion - jurisdiction of Civil Courts vested by Order VII Rule 11 of the Code of Civil Procedure 1908 - HELD THAT - The duty of a Bank to its customers and clients involves fundamentally an element of trust and confidence justly reposed by the client in the Bank and its employees is merely stating the obvious. Where therefore the plaintiffs allege that the Bank has in collusion with other defendants used documents got fraudulently executed or signed by the plaintiffs to mortgage the plaintiffs property with the Bank fraud quite plainly is alleged. The particular use of the word fraud mantra-like is hardly required where the elements of fraud are pleaded as in the present case. Collusion if alleged therefore partakes in its essence of the character of fraud. Particularly in the case of a Bank which enjoys a fiduciary relationship with the public an expansive interpretation to the expression fraud has to be accorded. Whether the allegation is right or wrong substantial or merely chimerical or merely a puff in the air is not relevant while examining the applicability of para 51 of the report in Mardia Chemicals 2004 (4) TMI 294 - SUPREME COURT . Once the allegation exists it exists for better or for worse. Once fraud on the part of the secured creditor is alleged recourse to ordinary civil remedies cannot be denied to the plaintiffs. Objection of defendants rejected.

Summary

Issues Involved:
1. Issuance of summons in the suit.
2. Allegations of fraud and collusion.
3. Applicability of Section 34 of the SARFAESI Act.
4. Jurisdiction of civil courts under the SARFAESI Act.

Issue-Wise Detailed Analysis:

1. Issuance of Summons in the Suit:
Mr. Ravi Gupta, representing Defendant 3 (the Bank), opposed the issuance of summons and sought dismissal of the suit under Order VII Rule 11 of the CPC without any pleadings on record. The Court, however, noted that since no application under Order VII Rule 11 was moved by the defendant, the submissions in the plaint had to be treated as admitted for the purpose of this application. The Court proceeded on demurrer, treating the averments in the suit as correct for consideration of the objections raised by Mr. Gupta. Despite Mr. Gupta's attempt to argue without pleadings, the Court found that this risk did not pay off in this case.

2. Allegations of Fraud and Collusion:
The plaintiffs alleged that Defendant 1 misled them into believing he was financially secure, coaxed them into signing undisclosed documents, and fraudulently used these documents to mortgage the suit property with the Bank. The plaintiffs claimed they were unaware of the mortgage until 2019 and subsequently filed a police complaint and a letter to the Bank's Chief Manager alleging fraud and collusion by Defendant 1 and some Bank officials. The plaintiffs sought declarations that the documents executed in favor of the Bank were null and void, cancellation of the mortgage, return of the title deeds, and restraint against the Bank from interfering with their possession of the suit property.

3. Applicability of Section 34 of the SARFAESI Act:
Mr. Gupta contended that the suit was barred by Section 34 of the SARFAESI Act, which prohibits civil courts from entertaining suits in matters that the Debts Recovery Tribunal (DRT) or Appellate Tribunal is empowered to determine. He argued that the plaintiffs did not allege fraud against the Bank, and thus the suit was not maintainable. However, the Court found this submission contrary to the record and pleadings, noting that the plaintiffs had specifically alleged fraud and collusion by the Bank officials, which falls within the exception carved out by the Supreme Court in Mardia Chemicals Ltd v. U.O.I.

4. Jurisdiction of Civil Courts under the SARFAESI Act:
The Court referred to the Supreme Court's decision in Mardia Chemicals, which held that the jurisdiction of civil courts is barred under Section 34 of the SARFAESI Act except in cases where the action of the secured creditor is alleged to be fraudulent or the claim is absurd and untenable. The Court emphasized that an allegation of fraud suffices to invoke the jurisdiction of civil courts. The plaintiffs' allegations of collusion and fraud by the Bank officials were sufficient to bring the case within this exception. The Court concluded that the plaintiffs were entitled to issuance of summons in the suit, rejecting Mr. Gupta's objection.

Conclusion:
The Court found that the plaintiffs had sufficiently alleged fraud and collusion by the Bank officials, which brought the case within the exception to the bar on civil court jurisdiction under Section 34 of the SARFAESI Act as established in Mardia Chemicals. Consequently, the plaintiffs were entitled to issuance of summons, and Mr. Gupta's objection was rejected. Separate orders in the suit and pending applications were to be pronounced separately.